MAC report
The government’s Migration Advisory Committee (‘MAC’) assessed the contribution to the economy of EEA migration on the UK in its report of September 2018.
MAC gathered extensive evidence on the impacts of migration on employment and wages, and concluded that migration:
- has a positive impact on productivity and GDP;
- has little impact on the overall employment and unemployment outcomes of the UK-born workforce;
- however, the impact may vary across different UK-born groups with some negative effects for the lower-skilled and some positive effects for the higher-skilled.
- is not a major determinate of the wages of UK-born workers;
- however, lower-skilled workers face a small negative impact and higher-skilled workers a small benefit.
The evidence contrasts with the common view that immigration reduces the pay and job chances of the UK-born.
This common view is often based on the ‘lump of labour’ fallacy – the idea that the number of jobs or vacancies in an economy is fixed. Instead, research suggests that immigrant workers increase overall employment, GDP and productivity. Also, immigrants consume goods and services, and increase demand, which helps create more employment opportunities.
Another useful source for key studies is the Bruegel Institute, the Economic Effects of Migration. January 2017. Oxford University’s Migration Observatory provides extensive impartial analysis on migration.
Impact on public services
The UK does not collect data on how the contribution and use of public services differ by citizenship. This means that most studies about the economic impact of migrants assume they follow the same pattern of contribution and use of public services as the rest of the population.
Different types of migrant have different impacts. Some benefit the economy and public finances more than others. For example, several studies show that non-EU migrants have a negative impact on public finances (in aggregate).
Impact on wages
Compared to the UK-born, EU immigrants tend to be more educated, younger, more likely to be in work and less likely to claim benefits. About 44% have some form of higher education compared to 23% of UK-born. In London, there are many EU citizens in finance and business services: occupations which are highly-skilled and highly-paid. In addition, EU immigrants pay more in taxes than they take out in welfare and the use of public services (see below).
The consensus is that recent migration has had little or no overall impact on wages. There is possibly some, small, negative impact on low-skilled workers (evidence to Migration Advisory Committee, Professor Jonathan Portes). However, the London School of Economics (LSE) found that UK regions with large increases in EU immigration did not see the jobs and pay of UK-born workers fall. LSE concluded that the big falls in UK wages after 2008 were due to the financial crisis and a weak economic recovery, not immigration.
Sources:
Migration Advisory Committee (MAC) report: EEA migration in the UK: Final report, September 2018
Centre for Economic Performance, LSE, Brexit and the Impact of Immigration on the UK Jonathan Wadsworth,Swati Dhingra, Gianmarco Ottaviano and John Van Reenen
Migration Observatory, The Fiscal Impact of Immigration in the UK, May 2017
Home Office, Impacts of migration on UK native employment: an analytical review of the evidence, March 2014
Impact on public finances
The impact on public finances (the fiscal impact) is the difference between taxes and other contributions to public finances, and the cost of the public benefits and services received.
Overall, EU migrants tend to make a positive contribution while, overall, non-EU migrants do not. However it is easier to estimate how much migrants pay in taxes and receive from benefits than to estimate their contributions to and use of public services.
The MAC concluded that EEA migrants pay more in taxes than they receive in benefits. The Committee analysed the overall contribution to public finances in 2016/17. MAC found that EEA citizens made a positive contribution of £4.7 billion compared to non-EEA migrants who cost £9.0 billion. UK citizens cost £41.4 billion. These figures take into account the rise in national debt that occurred in 2016-17.
In terms of impact on public services, the MAC concluded:
- Health and social services:
- EEA migrants contribute much more financially and through work than they consume in services.
- Education:
- children of migrants form a higher proportion of the school population than migrant workers do in the school workforce;
- however, migration does not reduce parental choice in schools or the educational attainment of UK-born children.
- Social housing:
- few migrants are in social housing but they form a rising proportion of new tenants.
- as there is little new social housing, this is at the expense of other potential tenants.
- the provision of public services and social housing is complex, and slow to respond to changes in demand.
HMRC analysis
Pre-Brexit, HMRC conducted periodic static analysis, limited to income tax and some benefits for the tax for EU and non-EU citizens working in the UK.
For example, for the year 2014/15, HMRC found:
- EU citizens’ net contribution to taxes was £13.3 billion (see Table 6.4).
- for recently-arrived EU citizens (defined as over the last four years), the net tax contribution was just under £3.0 billion.
- non-EU EEA and Swiss citizens contributed a further £271 million (net).
Despite the limitations of the HMRC analysis would have been available to government who were aware of the economic importance of EU and EEA workers to the UK, even without precise figures.
Please note the limitations of the HMRC analysis:
- restricted to benefits administered by HMRC, tax credits and Child Benefit:
- excluded benefits administered by the Department of Work and Pensions (DWP), such as Housing Benefit, State Pension, working-age benefits, and other benefits.
- DWP estimated that in 2013-14, EEA citizens claimed £1.7 billion in benefits.
- excluded the benefit of other taxes paid by individuals such as VAT or business taxes such as Corporation Tax or Business Rates.
- ignored regional imbalances between the taxes collected and the benefits claimed (for example between London and other regions).
| Table 6.4: Tax contribution of EU citizens 2014-15 | All EU citizens | Recently arrived | ||
|---|---|---|---|---|
| £m | £m | £m | £m | |
| Income tax collected | 9,170 | 1,810 | ||
| National insurance collected | 6,940 | 1,750 | ||
| Tax collected | 16,110 | 3,560 | ||
| Tax credits paid | (2,026) | (438) | ||
| Child benefits paid | (804) | (163) | ||
| Tax benefits paid | (2,830) | (601) | ||
| Net tax contribution | 13,280 | 2,959 | ||
| Source: HMRC |